tl;dr: Cryptoeconomic networks as co-operatives version 2, just digital and at scale. The legal benefits of doing so.
Despite five years studying the crypto space, I sometimes struggle with effectively explaining the concepts.
One of the issues I face is that I think of cryptoeconomic networks as something new.
When you’re describing something new, however, it’s useful to remember the adage, “same, but different.”
I don’t always follow my own guidance on this, but the principle is easy.
Ground people in something that is already familiar to them, then show how it is different.
I was reminded of this as I read Leadership in The Ownership Economy—Scaling Decision Making while Minimizing Securities Risk by Jesse Walden.
Co-Ops version 2
Jesse’s suggestion is to think of cryptoeconomic networks as simply modernized, updated, and more scalable version of a cooperative.
First of all, it gives people a frame of reference, a “same, but different.”
More importantly, though, it allows for crypto networks to operate within pre-existing, widely understood, and established legal frameworks.
By making the co-op analogy, founding teams of new cryptoeconomic networks, which are borne into existence out of a desire to literally make everyone better off materially, can avoid the dreaded “securities” designation. In so doing, they avoid the choice of having to either go through a heavy regulatory approval process that would stifle innovation or forge ahead with the risk of personally exposing the founders to charges of trafficking in unregistered securities.
For an industry that moves at the speed of light, that’s an unwelcome trade-off.
Furthermore, by choosing the co-operative framework, founding teams don’t have to “step back” immediately from a project upon its launch for fear of failing the Howey test which is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
If the founding teams aren’t involved, then they can’t be the third party that token holders expect to profit from.
However, at the same time, if founding teams are not involved, then the project risks losing its driver at a critical early stage. It’s one thing to send your kid out into the world to fend for herself when she is 18. It’s another when she is 1.
By having a token classified as a co-op member share, Walden’s suggestion elegantly threads the needle to allow innovation within existing regulatory frameworks while providing guidance to founding teams about how to think about and position their projects to potential co-op members, aka token holders.
